'Stable' outlook for Australia's AAA rating

Moody's stable outlook for Australia comes close to a month after Standard & Poor’s downgraded the country's credit outlook earlier this year.

Australia also received a warning from Moody's that the split Senate and tight Federal Parliament would be a credit negative.

Despite this, Moody’s senior vice-president Marie Diron said that Australia maintained “stronger fiscal metrics than many similarly rated peers”, even in the face of rising government debt, adding that the economy’s resilience to challenges was expected to continue.

“Australia's large size, high income levels, competitiveness, flexibility and growth record combine to offer exceptional economic strength, which supports the AAA rating.

“The economy is quickly and effectively adjusting to lower commodity prices that have dampened a significant source of revenues and incentives to invest,” she said.

Treasurer Scott Morrison said the government welcomed the decision, commenting further that maintaining a stable AAA rating was “important in an increasingly uncertain and volatile global economy”.

“Our AAA rating helps to keep borrowing costs low for businesses and consumers across the economy, as well ensuring Australia is in a much stronger position in the event of any external economic shocks,” he said.

The AAA rating could see a downgrade if the economy’s resilience to “negative shocks” started to diminish, Moody’s noted, particularly if it caused “severe challenges” in the government’s or banks’ financing from international investors.

Additionally, Moody’s expects government debt levels to continue their upward trend, forecasting debt to reach 41 per cent of GDP by 2017.

“Moderate nominal GDP growth will continue to dampen government revenues while the government faces political hurdles to the implementation of fiscal tightening measures, as it rules with a very thin majority in the House of Representatives and a splintered Senate,” Ms Diron said.

Even so, Australia’s debt burden would “remain consistent with a AAA rating” according to Moody’s, though fiscal policy effectiveness “may be undermined somewhat”.

[Related: Credit ratings agencies make 'surprising' comeback]